About the podcast: A Founder's Unfiltered podcast episode with Harshil Mathur, co-founder of RazorPay, which has over 800,000 merchants using their solution today. Harshil talks about his journey, the early days of building RazorPay, lessons learned along the way, and gives his views on neo-banking, the impact of COVID-19 and network effects in B2B businesses.

Key Takeaways:

  1. Founders should always build products with a customer-centric approach. In RazorPay's case, since it got access to banking APIs much later in the journey, their solution was always built from the customer perspective (compared to other players who received the bank APIs first and built on top of them). This helped differentiate the product tremendously.
  2. In the early days, do not try to perfect your product. Try to get an MVP out as soon as possible, gather customer feedback and keep iterating. A lot of founders tend to spend a lot of time gathering and analyzing tons of data before launching a product, which results in lost time and sub-optimal results.
  3. Early-stage startups have small teams so they really need to focus all their efforts on targeting the right customer. There are 3 types typically - elephants (large customers but typically harder to manage and move slower), rabbits (small customers but lower revenue generating potential initially) and deer (medium-sized customers). Each of these has pros / cons and a startup needs to have a very clear strategy on who they want to target initially.
  4. While B2C businesses can have strong network effects, B2B businesses can also have equally strong network effects because every new client you serve well helps attract the next one. In B2B, where the choice of opting for a particular solution carries greater risk for the decision maker, he / she is constantly looking for proof-points of trust and reliability (which typically means larger clients). So a B2B startup must, at the right time, focus some amount of resources in attracting large top-tier clients. This helps increase the sales funnel and reduce the conversion cycle drastically.
  5. The hype in neo-banking in India (and globally) is not necessarily a bad thing. It means that there is a large opportunity (a large % of market cap is still made up by BFSIs) and a genuine problem to be solved (a lot of underserved customers looking for digital-first / convenient banking solutions). However, the ones who succeed will be those that build for a particular kind of user and go very deep. Razorpay has decided to focus on SMEs because they understand this customer the best and have already built a strong layer of trust with them.
  6. The best founders know how to get the most out of their investors. Were the second Indian startup to be part of the Y-combinator program. This helped the startup in multiple ways besides capital 1) YC encouraged the founders to think much bigger - not to limit themselves to payment acceptance but to expand the vision to include a more holistic banking platform (with payments as the wedge to gain trust); 2) exposure to great investors and partners; 3) YC alum network e.g. a YC alum helped RazorPay go live on Shopify's platform; 4) deep knowledge base and global experience with hiring, fundraising.

Notes:

  1. Original idea of the founders was to build a crowdfunding platform for India but they soon realized how difficult it was for a startup to start accepting digital payments in India. They realized that therein lies a larger opportunity and decided to solve this problem for startups and small businesses.
  2. Unlike building other app products (which you can simply develop on your own and launch into the world), building a digital payments platform requires partnerships with banks and breaking into that ecosystem was extremely hard (back in 2014 and even today) for a new startup, particularly for founders who did not come from a fintech, banking background / network. Approached 80-100 bankers for partnership but were rejected. Finally, a banker at HDFC bank (who had been following the journey of global giants like Stripe) believed in the idea and gave them an in-principle partnership approval. This was a huge break.
  3. A lot has changed since then. Today, banks are much more open to partnering with startups because they recognize the value these startups can bring.
  4. Were the second Indian startup to be part of the Y-combinator program. This helped the startup in multiple ways besides capital 1) YC encouraged the founders to think much bigger - not to limit themselves to payment acceptance but to expand the vision to include a more holistic banking platform (with payments as the wedge to gain trust); 2) exposure to great investors and partners; 3) YC alum network e.g. a YC alum helped Razorpay go live on Shopify's platform; 4) deep knowledge base and global experience with hiring, fundraising etc.
  5. The key thing YC instilled in the founders was to 'build something that people need and want' i.e. keep talking to your customers. So even before the first banking partnership came through, the team already had a good sense of exactly what they wanted to build because they had been talking to their customers for a while. As a result, as soon as the partnership came through, the company had a ready base of 400-500 customers who wanted their solution.
  6. Demonetization was a huge boost to the business (merchant base grew 10x in a few months post the event). As soon as it happened, the next day the entire team brainstormed about what this would mean for their TG (small merchants) and how they could add value to them. Came up with an E-POS app (digital payment acceptance app) in 3 days. This was a huge success. One big reason for this was the culture of the team which was driven towards ownership. Every single person in the team (irrespective of role) basically tried to identify ways they could help and took ownership.
  7. While the original vision was to provide more holistic banking solutions to small businesses, the journey was organic and was paved by constantly listening to the feedback, desires, and problems of the customers along the way. Moved from payment gateway (original offering) to Razorpay 2.0 (more sophisticated / expanded offerings) to the current Razorpay X platform (full-fledged current / savings account management platform).
  8. While B2C businesses can have strong network effects, B2B businesses can also have equally strong network effects because every new client you serve well helps attract the next one. In B2B, where the choice of opting for a particular solution carries greater risk for the decision maker, they are constantly looking for proof-points of trust and reliability (which typically larger clients). So 1 year into the journey, Razorpay created a separate sales team to focus on larger enterprise clients. Getting some of these large clients onboard (Zomato, Swiggy etc.) helped increase the sales funnel and reduce conversion cycles.